LM 7: Business Models Flashcards
What are the 3 basic elements of a business model? VVP
- value proposition
- value chain
- profitability
What are 4 things value proposition addresses? TPCP
- target customers
- product / service offering
- channel strategy
- pricing strategy
What are 3 things value chain addresses? BVC
- business activity (assets, organization)
- value added and costs per activity
- competitive advantage
What are 3 things profitability addresses? MBU
- margins
- breakeven points
- unit economics
What are 3 ways company’s target customers under the value proposition? GMC
- geography
- market segment
- customer segment
What is channel strategy?
where a firm is selling its products
What is the flow of a traditional channel strategy?
Manufacturer > wholesaler > retailer > consumer
What is the flow of a direct sale channel strategy?
Manufacturer > consumer
What is drop shipping channel strategy?
business model that allows you to sell products online without having to own or operate the physical location where those products are stored and processed
when a person, or company, sells goods on their website that they do not keep in stock when an order is received, they send those orders to another company to ship the goods directly to the buyer.
What is omnichannel strategy?
involves both phyiscal and digital channels.
eg. when ordering online you can pickup in store or get delivered to your house
What is the difference between price setters and price takers for pricing strategy?
price setters have a highly differentiated product and can charge a premium
price takers must accept the going market rate
What are 2 common approaches to pricing, describe them? CV
- cost based pricing (amount to charge consumers based on costs incurred)
- value based pricing (sets prices based on perceived value) (eg. luxury brands perceived more valuable )
What are 3 types of price discrimination, describe them? TDA
- tiered pricing (group of customers eg. lower per unit prices to high volume buyers)
- dynamic pricing (based on timing, high price during periods of high demand, lower price less demand)
- auction/ reverse auction models (price determined on competitive bidding process)
What are 3 strategies for pricing for multiple products, describe them? BRO
- bundling (bundling things together)
- razors & blades pricing (low price for equipment that requires ongoing purchase) (eg. ink cartridges for printers)
- optional product pricing (purchases additional protection eg. shipping fee)
What are 3 types of pricing models for rapidly growing companies, describe them? PFH
- penetration pricing (offering lower price initially eg. subscription)
- freemium pricing (offer basic functionality, expect users to pay for premium futures or content)
- hidden revenue business model (providing service but receiving compensation from somewhere else) (eg. provide service for free and generating revenue. from advertisers)
What are 5 alternatives to ownership, describe them? SFLLF
- subscription pricing (customer purchase access for as long as need)
- fractionalization (split uses, eg a house for a month between 4 parties)
- leasing (pay for use of asset owner by another entity)
- licensing (use of intangible asset for royalty payments eg. license cartoon character for percentage of profits)
- franchising (grant a franchisor the exclusive right to distribute a company’s products and/or services within a specified area.)
Whats the difference between supply chain and value chain?
supply chain deals with building the product and getting it to the consumer
value chain looks for ways to enhance the product’s value as it moves along that supply chain.
What is unit economics?
quantitative analysis of company’s revenues & costs on a per unit basis
What is contribution margin formula?
unit price - variable cost per unit
What is break even point formula and use?
quantity of units sold that allow company to cover its fixed costs
breakeven point = fixed / contribution margin
What is operating profit formula?
operating profit = revenues - variable costs - fixed costs
What is operating margin formula?
operating margin = operating profit / revenues
What are 3 e-commerce business models, describe them? AMA
- affiliate marketing (arrangement to provide commissions for meeting targets, sales, clicks, etc.)
- market place businesses (online retail earn commissions for connecting buyers and sellers without ownership)
- aggregators (remarket products or services under own brand eg. uber)
What are private label manufactures, licensing arrangements, and value add resellers?
private label (manufactures producing items market by other firms)
licensing arrangements (firm sell products using other firm brand in exchange for royalty)
provide key follow-up services for the products that they sell.
What are network effects, crowd sourcing, franchising models?
franchise models: grant franchisees right to operated at location in exchange for royalty)
crowd sourcing: relies on users to generate product or service. eg google maps when traffic
network effects: value derived from incremental increases in users
What is asset light, lean startup, and pay in advance business models?
lean startup = outsourcing functions
asset light = avoid direct ownership of assets such as buildings
pay in advance = requires negative investments in work capital before being paid
What are multi sided networks?
Multi-sided networks have two or more types of users. For example, payment systems must be adopted by both merchants and customers.
What are bundle pricing strategy best used for?
effective for selling complementary products with high incremental profit margins and high marketing costs relative to the cost of the product.
For example, phone, internet, and cable television services.
